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Edited By John Ryan

This book discusses the emergence of a multi-polar currency system. With the US Dollar’s hegemony as global reserve currency in question, it examines the role of the Federal Reserve in its decline, the emergence of the Euro in a multi-polar currency system and the Chinese influence in this most important policy arena. China’s concerns about its US Dollar reserves are being amplified by the low returns of some of its investments in the United States. Today’s reserve currency system effectively results in China lending to the US at very low interest rates.
China needs to diversify out of the Dollar and it is this monetary policy that will fundamentally change the global currency scenario. China has been supportive of the Euro since its creation and is also lending support to the IMF’s special drawing rights. At the same time, Chinese policy targets the internationalisation of the Renminbi and with that the creation of a multi-polar monetary order.

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Introduction

Similarly to the end of the 1960s, when the Bretton Woods system collapsed, and the 1980s, when the twin deficits of the US were also skyrocketing, in recent times (especially after the ‘Wall Street Meltdown’ in 2008) there is an increasing debate among International Political Economy (IPE) scholars on whether the centrality of the Dollar in the international monetary system (IMS) is in doubt (Helleiner & Kirshner 2009; Cohen 2010; Eichengreen 2011). The arguments of the current debate have similar features to earlier disputes on Dollar hegemony, while there are now new variables that make this discussion different. Where in the past there was Giscard d’Estaing and Charles de Gaulle complaining about the ‘exorbitant privilege’ enjoyed by the US, today we have Zhou Xiaochuan (2009), governor of the Chinese central bank (PBoC), and Hu Jintao, president of China, stating similar criticisms, pointing to the instabilities associated to the Triffin dilemma1 and proposing, as was the case in the late 1960s with ← 5 | 6 → the Europeans (Eichengreen 2008), an increased use of the Special Drawing Rights (SDRs) issued by the International Monetary Fund (IMF). The perceived rise of China as an upcoming world superpower is also comparable with the rise of Japan in the 1980s. China has also developed a successful export-led growth strategy, based in part on a devalued currency, which is said to be threatening the world’s number one position of the US economy.

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